How to flip a Building in Ontario, Canada

Question

Hi all,

I am about to put an offer on a building with 11 units, the building has low rents and some repairs needed.

I would like to vacate the whole property and renovate the whole building and get new tenants.

What is the best strategy in terms of requesting the tenants to vacate the whole building in Ontario?

thank you

Filipe

Simon Lloyd · Answer

That's very exciting @Filipe Matos !  I wish you the best of luck on this deal.

I'm not a Tenancy Act expert by any means but I did have to evict tenants from all three units of a triplex I owned when it was purchased by the local regional government.  I gave 90 days notice and didn't find out until too late that 120 days is actually required (as @Roy N. states--of course!--correctly).  But it really wasn't an issue.  Luckily if it HAD been an issue, any legal fees would have been paid by the municipality in this case so I wasn't on the hook, but my point is that if you treat tenants with respect and dignity and give them as much notice / information / explanation as you are able, they will be more likely to reciprocate and you won't need worry about the intricacies of the Landlord Tenant Act.  Tenants generally aren't legal experts nor do they want to waste their own time at a LTB tribunal (of course there are exceptions to this) so if you can offer some type of compensation or assistance in finding new placements, and treat them with respect throughout the process you may find it easier than using a more combative strictly legal approach.

Good luck!

Roy N. · Answer

@Filipe Matos

Oren K. brings up a good point, Toronto is its own little microcosm and, it ay tenants use their ability to appeal during any stage of the process, the Tenant Board tends to be severely backed up which could effectively double the timelines in the act.

Roy N. · Answer

@Tyler Veres

My interpretation aligns with yours.  I have not researched the case law surrounding this situation as we are not active in Ontario multis at this time.

It would seem you might want renovations to take a sufficiently long time that the former tenants would be settled in a new home and find it too much of a bother to exercise the right of first refusal.

Tyler Veres · Answer

I am looking into something similar.  Am I interpreting the language correctly that a tenant can exercise their right of first refusal and move back in at a rate charged before the renovations?  Please see below, namely 53. (3).  This seems to deter anyone from trying to renovate and improve units, when at the end of said renovation, the previous tenant can move back in a what now constitutes a very discounted rate.  At that point, they will probably never leave and all effort to improve the building is for not.  Almost seems to create a recipe for never trying to gentrify/renovate an area.  Backwards thinking, in my opinion.  Obviously I am looking at this through the landlord's lens and not the tenant's.  Please advise if my interpretation is off.

Tenant’s right of first refusal, repair or renovation

53. (1) A  tenant who receives notice of termination of a tenancy for the purpose  of repairs or renovations may, in accordance with this section, have a  right of first refusal to occupy the rental unit as a tenant when the  repairs or renovations are completed.  2006, c. 17, s. 53 (1).

Written notice

(2) A  tenant who wishes to have a right of first refusal shall give the  landlord notice in writing before vacating the rental unit.  2006,  c. 17, s. 53 (2).

Rent to be charged

(3) A  tenant who exercises a right of first refusal may reoccupy the rental  unit at a rent that is no more than what the landlord could have  lawfully charged if there had been no interruption in the tenant’s  tenancy.  2006, c. 17, s. 53 (3).

Thanks,

Tyler

Filipe Matos · Answer

Another point I would like to touch:

What size of buildings do you guys purchase and how was the experience?

Buildings greater than 15 units might be too much for me since my approach is go in , renovate the whole thing and rent asap. Doing a 20 unit building may take too long, annoy tenants too much unless I hire 3/4 teams of contractors.

I am feeling my sweet spot might be 10 to 15 units max.

This might be my first experience with buildings and I am finding that it might not be such a great business approach as I was expecting.

I found a few issues with buildings:

- cap rates are decreasing fast around here

- property taxes seem to be absurd in some cases compared with 5/6 plexes

- expenses can be actually higher per unit compared with 3/5 plexes

- tenant profile is probably worse

- Rents not be higher compared with 5/6 plexes

- cash flow might not be greater  compared with some 5/6 plexes

- bed bugs seem to be a serious issue in buildings

Filipe Matos · Answer

That's right Simon, that is the feedback I get around here from fellow investors. Hopefully we all will do things respectfully and all will be fine and in good terms in the end.

cheers

Oren K. · Answer

I defer to Roy regarding the Tenancies Act. There clearly are ways to get tenants out but I stand by the fact that it is a difficult and long process as in the case I linked.

Not for the faint of heart or business case / plan that does not have a lot of contingency built in.

Best of luck

Filipe Matos · Answer

ok, yes , it can be complicated , it all depends on the tenants.

I prefer to vacate the whole building at once so it's clear I am going to make it a major construction site and save the tenants from living in the middle of dust for 6 months.

It's clear for everyone it's best to clear the whole building, and giving 4 months is a pretty good time to look for another place to stay. Where I am planning to buy, rents are affordable, so they should not have to spend too much on moving to a new place.

We shall see.

Sending an offer now, asking price is a bit high, lets see how it goes.

thanks everyone.

Oren K. · Answer

Filipe,

All I can say is good luck with that. In Toronto, even if all the leases are expired (assumption), the tenants become MTM renters and under the Landlord Tenant Act (LTA) have a right to stay in the unit. You are required to maintain the unit and are can make limited rent increases based on rent controls (basically inflation). Note: this does not apply to condos in the same way and that is why probably 1/2 the condo inventory is leased out.

Other then them leaving voluntarily, the only way to evict a tenant is if they stop paying rent and you take them through the eviction process which will take at least 6 months and I have seen cases where it has taken YEARS (I kid you not!).

There is one case in the news currently about a single family in city owned assisted housing building that simply refuses to move. The city has been trying to evict them, for various reasons since February 2013 (almost 2 years). The city wants to 'condemn' the building (tells you something about the state of the property) and redevelop the site. The city is willing to move them but wants to keep the eviction process going so they don't have to start from scratch. The work on the building can not start with them in place and the cost to the city is estimated @ ~ $10K per day that things are being held up. (see: http://www.torontosun.com/2014/10/03/tenants-refusal-to-leave-delaying-tchc-building-demolition)

So short of giving your tenants an 'inducement' to vacate (and that may not work), you need to think about this (if you move forward) as a long term process. If they have 'low rents' currently, it will probably be challenging for them to find a new place with similar rent which is 'as nice' (whatever that mean in this context). Don't forget that you will need to continue to support / maintain the property as it vacates (e.g. taxes, utilities, snow clearing, etc.). If you don't, they can call in and get violation notices forcing you to do the repairs / maintenance. It will also allow them to deposit the rents in a trust account until the work is done (depriving you of the cash flow).

Read / know the LTA. Get familiar with the Landlord Tenant Board (LTB) processes. Get a lawyer who specializes in LTA / LTB work. Even with a 'smaller' property, I think you really need to have deep pockets, deep knowledge and lots of patience for something like this.

As I said, good luck with that.

Oren

Roy N. · Answer

Filipe:

I was just about to get to that.  You had better read Sections 53 & 54 of the Tenancies Act:

If a tenant exercises the right of first refusal, it looks like you will be limited in how much of an increase in rent you can ask.

Section 54 reads that you need to pay the tenant up to 3-months rent as compensation or offer them an alternate place to reside during the renovations.

In NB we have neither of those requirements, we need just serve 3-months notice of termination to have the unit vacant and then commence renovations within 60-days.  There is no right of return for the tenant and no compensation.

You may get tenants to agree to leave on their own, but if they know, or learn, that they are entitled to 3-months rent as compensation, your bill grows quickly.   Is there anyway to plan the renovations such that you need only vacate half the building at a time?

How to flip a Building in Ontario, Canada

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